Of Roberto Pecchioli

Source: Heretically
Consulting foreign newspapers broadens your horizon. Far from our home journalism, busy rummaging through CVs or fueling fascist hunts - now it's the Minister of the Family's turn Lorenzo Fontana – we can read interesting news carefully hidden from us. An example is the European Central Bank report entitled “On the sources of economic cycles. Implications for DSGE models.” The acronym means General Equilibrium of Stochastic Dynamics. In the initiatory jargon of economists, stochastic stands for probabilistic, and talking about probable scenarios is already a nice bath of humility on the part of the snooty masters of histograms and mathematical models. Economists are very good at explaining in retrospect how things did not go as they had predicted. Il report of the ECB follows the opposite path, a commendable example of realism and concrete research.
The document is very critical of the dominant economic theory, reaching the shocking conclusion that the "expansive" austerity defended by the International Monetary Fund and the European Troika has no real basis. We live in dizzying times, what was unlikely becomes possible, despite the irritation, the bewilderment and amazement of the world mainstream. Empirical evidence is finally advancing, until reaching the plush rooms of the Eurotower in Frankfurt, whose scholars launch a destructive attack on the foundations of those who call for "reforms" always on the supply side.
It is too early to hope for a change of direction, but criticism has reached the foundations of what is taught in economic universities, shaping the policies of half the world. The authors of the ECB report Michal Andrie, Jan Bruha and SerhatSolmaz (no Anglo-Saxon name…) they investigated the sources of economic fluctuations, they took into consideration the Gross Domestic Product, consumption, investments, exports and imports, included in the analytical study the unemployment rate and inflation. Their statistical models of reference were the USA and other developed countries.
The importance of the research lies in demonstrating that conventional models, neoclassical, monetarists, neokeynesiani, committed to studying economic cycles by exclusively emphasizing supply, at best they have short-term validity. The point is crucial, devalues ​​one of the most unshakable "official" beliefs, that is, that fiscal policy cannot permanently alter the course of the economy. The study firmly rejects this assumption. The authors, in the analysis of economic cycles, affirm the existence of great regularities in the co- movements of key macroeconomic variables, predominant in the real economy. In a nutshell, the dynamics of the macroeconomic data cycle is largely explained by a single variable, that is to say, listen listen, aggregate demand, that is, the expense: it is the overwhelming victory of the principle of effective demand.
So, all reforms always aimed at the supply side, much trumpeted and imposed by force, they are just words, free jokes, apocryphal gospels passed off as truth. The implications are brutal, since stochastic dynamic equilibrium models, so loved by Orthodoxy, they do not pass the test of facts. The ECB writes: “The most relevant DSGE models are not compatible with our empirical findings about the quantity of factors and the nature of joint movement in macroeconomic data”. Hit and sunk! The results of field research “show a single dominant dynamic principal component, aggregate demand".
The relevant consequence is that the "expansive" austerity defended by the IMF and the Troika is not justified: pure ideology. They forced governments to reduce deficits during the long recession using fiscal leverage, based on the fallacious belief that this would generate growth. Obviously that didn't happen, because economies don't work that way. The research confirms the remarkable stability of the joint movements between the aggregate variables: if investments collapse, or decrease spending, private consumption decreases, as decreased investment and spending weakens production. Companies are firing people, state revenues collapse, household consumption and saving decrease. Elementary, Watson! All this certifies the limited usefulness of the macroeconomic models used by economic policy bodies, neoclassical, monetarists and even neo-Keynesians, lean towards the supply side, ignoring the dominance of aggregate demand in explaining growth and inflation dynamics.
To put it in brutal terms, they have been cheating us for decades. The attack of the Frankfurt economists becomes devastating when they state that "every structural economic model must, at the very least, be able to generate the structure of the main components of the data they are supposed to represent”. Diatribes between specialists with cryptic concepts? No, the certification of the abstractness of macroeconomic models that fail and overwhelm the concrete lives of millions of people. Another effect of the study is the confirmation of the “joint movement of production and inflation as a result of demand dynamics.”
Therefore, the presumed long-term neutrality of money was and remains an urban legend dogmatically imposed since it would be determined exclusively by supply. Here the lie is brazen and affects the capital function of monetary creation. If you maintain economic policies based on incorrect or false assumptions, there are only two possibilities, the incompetence of those who support them or the defense against all evidence of powerful interest groups: the principle of elite domination. In recent times, a part of public opinion has become aware of this. We will see the new governments of Italy and Spain put to the test, which promise to act against the trend of neoliberal logic.
A brief reflection on the neoliberalism that has been dominating us for over thirty years is necessary. Its strength is that it is not an ideology in the strict sense, but of a long political process whose present phase is that in which the "corporate" power (finance, banking system, large multinationals, tech giants) he takes off his mask, it ceases to be a purely economic phenomenon and transforms into absolute power, o, if you prefer, in a hegemonic structure. The objective is the greatest possible concentration of wealth and power in the smallest number of subjects.
It is the new feudalism, as whoever coined the term capitalism understood. It is this neo-feudal power that determines, lean, hinders, it prevents the formation of governments and directs the popular vote. This is why they invest in the media, which they own by an overwhelming majority. Its peculiar traits are anti-democracy and oligarchic rule. Even a president of the United States took note of it, F.D. Roosevelt: “They had come to regard government as a mere appendage to their affairs. We now know that the rule of organized money is just as dangerous as the rule of organized mafia.".
The two groups bonded, suffocating, totalitarians, otherwise violent. A breach is opening. Let's not let them run for cover; above all, let's stop believing their lies. As demonstrated by a free voice coming out of the ECB, a sanctuary of the empire, their strength is repeated deception, the inversion of meanings. Primo, don't believe.